2A - Ensure additionality for crowding in commercial finance.
Development finance is a scarce and precious resource, and mobilisation of additional funds from commercial investors is indispensable to meet the financing needs of Agenda 2030. To effectively increase total financing for development, blended finance needs to: 1) ensure additionality, by being deployed only for uses where commercial financing is not currently available for deployment towards development outcomes, especially if it involves concessionality; and 2) have an explicit focus on opportunities to crowd in financing from commercial sources into transactions that deliver development impact.
2B - Seek leverage based on context and conditions.
Blended finance should, when appropriate, efficiently leverage commercial finance to achieve development impacts. Appropriate leverage is context specific and varies across sectors, geographies, and the different stages of the investment life-cycle. While increasing leverage over time is not necessarily an indicator of increased development impact, it is a sign of increasing market maturity and of successful mobilisation. It also serves as a signal for the need for eventual exit of development finance.
2C - Deploy blended finance to address market failures, while minimising the use of concessionality.
Blended finance holds a pathfinder role of bringing commercial financing into sectors and geographies with substantial development finance needs. In this context, blended finance should be used to overcome barriers to market formation and withdrawn once functioning markets have been established. Pioneering investments may require considerable concessionality but as markets mature, the magnitude of public contributions should decline. Blended finance should not become a static or permanent approach in a given context, and the use of concessional development finance in blended finance, if any, should be minimized.
2D - Focus on commercial sustainability.
Blended finance transactions, particularly those involving concessionality, should be designed to eventually ensure commercial sustainability, including having a clear strategy for the duration of and exit of concessional finance. In supporting the evolution of nascent and immature markets, there is the need for effective safeguards to ensure optimal resource allocation, maintaining a level playing field and avoidance of market distorsion. The focus of concessionality should be towards develoment impact. Blended finance should also ensure competitive approaches and support that includes equal information, requirements and standards be applied to different market participants.